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Pay off or not to pay off?
03-13-2017, 03:13 AM
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#1
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Dryer sheet aficionado
Join Date: Dec 2013
Location: Canton
Posts: 42
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Pay off or not to pay off?
Pay of loan or stay invested?
I would like some opinions please. I have $30,000 in a Credit Union loan and a credit card balance. Approximately, $15,000 in each. I also have $30,000 in various stocks in a taxable Vanguard Brokerage account. Would is be wise to sell the stocks in the taxable account and pay off the loan and credit card bill.
Or…should I just pay extra and pay this debt off the old fashion way through extra weekly and monthly payments. If I chose this option I could easily have this debt payed off by December.
Thank you...
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03-13-2017, 05:25 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Location: Michigan
Posts: 4,964
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If you can pay off the debt by making payments through December, I would go for that. If you sell the stocks, you then may or may not lose potential gains, but will definitely have an emotionally hard decision on how to buy back in.
__________________
"The mountains are calling, and I must go." John Muir
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03-13-2017, 06:33 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
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What are the interest rates on the loans? -ERD50
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03-13-2017, 07:33 AM
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#4
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Dryer sheet aficionado
Join Date: Dec 2013
Location: Canton
Posts: 42
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6.75% on the CU loan and 10.65% on CC balance.
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03-13-2017, 08:28 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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What is the tax hit if you sell the stocks? What is the remaining term of the loans given your current payment plans?
If the tax bite isn't too much I would sell the stock, pay off the loans and then use the cash flow that would have been used to make loan payments to replenish the stocks over time. Hard to be beat a guaranteed 8.5% return from here given the recent run in stocks... but you never know.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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03-13-2017, 08:36 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by brownred
6.75% on the CU loan and 10.65% on CC balance.
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Who'd pass up a guaranteed 6.75% and 10.65%?......personal finance 101......pay off high interest debt.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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03-13-2017, 08:40 AM
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#7
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,773
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Keep the investments. Pay off the debt the old fashioned way (extra payments toward CC first, then the credit union loan) and be sure not to charge anything at all new on that card in the meantime as those purchases too will incur 10.65% interest until the card has a zero balance. I vote this because you'll be so sick of making these payments that it might cure you of carrying a balance in the future. Think of how much of that balance is interest at this point--you probably paid the actual cost of the items charged long ago. But seriously, kudos to you for addressing this before it really gets out of hand.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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03-13-2017, 08:51 AM
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#8
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Full time employment: Posting here.
Join Date: Dec 2006
Location: chicago burbs
Posts: 806
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Is the $30,000 your "rainy day fund" ? If so, pay off with increased payments (concentrating on the cc debt first). If not, pay off the whole debt now.
Or maybe go half way -take $15,000 pay off the 10.65% cc loan now.
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03-13-2017, 09:26 AM
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#9
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,171
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Normally I'm in the payoff camp... but in your case I think I'd super accellerate the extra payments to pay it off quickly by December.
FWIW - I did extra payments on my mortgage till it was small enough to lump sum without an issue... Those extra payments were painful but have burned into my soul that I don't like recurring payments. I now pay off everything in full every month.
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Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 6%, rental income 20%
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03-13-2017, 09:29 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2011
Posts: 8,368
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Quote:
Originally Posted by nun
Who'd pass up a guaranteed 6.75% and 10.65%?......personal finance 101......pay off high interest debt.
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+1
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The Winter's Tale, William Shakespeare
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03-13-2017, 09:31 AM
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#11
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Dryer sheet aficionado
Join Date: Dec 2013
Location: Canton
Posts: 42
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I really don’t know what the tax hit would be for sure but don’t think it would be to awfully bad.
November 2018 the CU loan will be paid off with normal payments.
No, it’s not a rainy day fund. It’s what I invest in because I max out my 401K and Roth. I have approx. $730,000 including the Vanguard tax account. I’ll be 58 in 4 months and want to retire no later than 59 ˝ (depending on what Med Insurance will be by then) with a pension then SS at 62.
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03-13-2017, 09:40 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Your brokerage should be able to tell you what the gain of loss would be if you sold. If with those gains your 2017 taxable income will be in the 15% tax bracket (or lower) then the capital gains rate is 0% (tax-free)... otherwise 15% unless your income is really high.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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03-13-2017, 10:13 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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I would pay them off. But do you have any money for emergency.
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03-13-2017, 11:04 AM
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#14
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Full time employment: Posting here.
Join Date: Jul 2013
Posts: 953
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Would it work to pull a loan against your 401K? <Ducks for cover> If you have been contributing heavily to the 401K, and if your plan allows it, this may make sense. A 401K loan might be a way to avoid a capital gains sale in a taxable account.
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03-13-2017, 03:02 PM
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#15
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Dryer sheet aficionado
Join Date: Dec 2013
Location: Canton
Posts: 42
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No I have no money for an emergency fund. On more thought, I'm leaning towards just paying it off. I can put $1000 week into the debt starting with the CC first.
Thanks everyone!
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03-13-2017, 03:34 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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You might want to watch out for the invitations in the mail for zero percent interest rate for short term temporarily, the caveat is that they have 3% fee.
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03-13-2017, 05:28 PM
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#17
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Full time employment: Posting here.
Join Date: Aug 2015
Posts: 550
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I would pay off loans first. Your investment return may or may not give you growth of needed level while loan interest you must to pay.
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